US Dollar tumbles after China share plunge spurs flight to safety

Washington (July 27) The U.S. dollar hovered around a nearly two-week low against a basket of major currencies on Monday after the biggest fall in Shanghai shares in eight years drove demand for safer currencies, while strong German economic data bolstered the euro.

Shanghai stocks tumbled 8.5 percent, dragging European shares down more than 1 percent and the U.S. benchmark S&P 500 index to its lowest in more than two weeks. The move led traders to favor the euro as well as the safe-haven Japanese yen and Swiss franc.

"Dollar weakness against the euro and the yen is a risk-aversion story reflecting China stocks," said Richard Franulovich, senior currency strategist at Westpac in New York.

He said traders who suffered losses in stock markets probably compensated by closing out short bets against the euro, which in turn helped that currency gain against the greenback. The euro was last up 1.02 percent against the dollar at $1.1094, near a two-week high of $1.11130.

The dollar also hit a nearly two-week low against the yen of 123.010 yen. The dollar was last down 0.43 percent against the yen at 123.26 yen.

Strong economic data also boosted the euro early on Monday.

The Munich-based Ifo Institute's business climate index rose to 108.0 from a revised 107.5 in June. That beat the Reuters consensus for a drop to 107.2 and was at levels consistent with a positive pace of growth.

"It certainly didn't help (the U.S. dollar)," said Kathy Lien, managing director at BK Asset Management in New York.

The market will watch the July 28-29 Fed meeting to see if policymakers provide clues for the timing of a rate "lift-off." Rising expectations that the Fed could begin hiking rates as early as September have been a major factor behind the dollar's gains over the past month.

The greenback was up 0.08 percent against the Swiss franc at 0.9628 franc.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.73 percent at 96.41. That was near its session trough of 96.358, which was its lowest since July 14.